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Are No Income Verification Home Equity Loans Your Best Option?
By EchoBay Loans Staff Writer

Owning your own business and being your own boss is the American dream, but it's not so dreamy when you have to be your own employment reference and your own income verifier. Especially when you've just started your own business, and while you may have perfect credit, you have no way of verifying your current income.

Or worse yet, after all of the deductions you've taken advantage of, on paper it may look like you're living at just above poverty level when in reality you could afford a decent-sized monthly payment on your home equity loan. Luckily for consumers who find themselves in this situation, there are lenders who are happy to assist you with your home equity needs in the form of no income verification home equity loans.

Also known as stated-income home equity loans, no income verification home equity loans do not require borrowers to provide proof of income to a lender when applying for a home equity loan. When you apply for this type of loan, the lender accepts the income that you state on your application as your actual income. However, if you're a customer service clerk at the local grocery store, you can't put down that your income is $200,000 a year. The income that you put down on the loan application must coincide with your profession or career. If you have to bulk up your actual income to qualify for your home equity loan, you may not be able to afford the payments and you could risk losing your home should you fall behind.

Unlike true no-doc home equity loans, no income verification home equity loans may require you to provide proof of employment. If you are employed by a company, they will most likely conduct an employment verification procedure even though they won't be inquiring about your pay level. If you are self employed, you may have to provide your business license or articles of incorporation as proof of employment.

While no income verification home equity loans may provide certain consumers with the flexibility that they need to qualify for a loan, it does not come without its costs. These types of home equity loans fall under the category of nonconforming loans. Because nonconforming loans cannot be purchased by the three main buyers on the secondary mortgage market; namely, Fannie Mae, Freddie Mac, and Ginnie Mae, the interest rates tend to be higher. Because of this, if you can qualify for a full documentation home equity loan, you might want to take that road in order to save money with a lower interest rate.

The difference in interest rates between no income verification home equity loans and full documentation loans can be as much as four percentage points, with the average being somewhere between 1.5 and 4 percent. That means if the current prime interest rate is 5 percent, you might be getting slammed with a 9 percent interest rate on your no income verification home equity loan. How much higher your specific interest rate will be with a no income verification home equity loan will depend on your credit rating and the LTV of the home equity loan that you are applying for.

While the higher interest rate can cause some people to balk, the rate might not be a problem if you think that you'll be able to qualify for a full-doc loan within the next year or so. At that point in time you could always refinance your house at a lower interest rate and pay off your home equity loan, assuming that interest rates don't rise above the rate you're already paying.

It can also make sense if you plan on selling your home shortly after you take out the loan and will be paying the loan off at the time of closing. If a no income verification home equity loan is what you need to make your home equity loan work for you, it is a very viable option. However, if you do qualify for a full-doc home equity loan, there are cheaper ways to cash in to the equity that you have in your home.


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